Angela Merkel delays banking deal until after German election

Germany’s Angela Merkel slammed the brakes on a deal to harmonise banking regulation across Europe last night, but did not allay fears that it will become a threat to the City of London.

In an intervention clearly designed to put off decisions to bail out the banks until after the German general elections, Mrs Merkel fended off French attempts to set up a new system by the beginning of next year.

At a dinner for the 27 EU leaders in Brussels last night, David Cameron made clear that Britain will not allow a new regulator to be created unless there are safeguards for the City. However, Britain wants the reforms to go ahead to bring stability to the euro.

Banking union dominated the opening session of the mini summit which was concluding this morning. Mrs Merkel used the excuse that more detailed work was needed: “We’ve got to work fast but very thoroughly.” Diplomats think she engineered the delay in order to postpone a German-financed bailout of banks and countries that will be unpopular with German voters.

A broad agreement to create a supervisor for 6,000 banks in 17 eurozone countries was reached but with detail left for later. Mr Cameron wants a complex voting mechanism to give countries outside the euro a form of veto.